Bank Spain Says Markets Showed Signs of Euro Disintegration

Bank of Spain Chief Economist Jose Luis Malo de Molina said markets were showing signs of the
“disintegration” of the single currency before the European
Union summit last week.

“The freezing up of the interbank market and the
dislocation of sovereign-debt markets constituted signs of
disintegration of the single-currency area and serious obstacles
to the transmission of common monetary policy,” he said in a
speech late yesterday posted on the Bank of Spain’s website.

EU leaders with the exception of the U.K. agreed to bolster
fiscal cooperation and strengthen deficit rules after all-night
talks in Brussels on Dec. 9 amid concern that Italy and Spain
may succumb to a debt crisis that’s brought Greece to the brink
of bankruptcy. The fiscal accord provides tighter budget rules
and an additional 200 billion euros ($260.2 billion) to the euro
area’s warchest in an effort to reassure investors that European
leaders will deliver the region from its two-year ordeal.

The summit produced “undoubtedly important steps” even as
“they are still partial and the pace may still seem too slow,”
Malo de Molina said. Achieving a “convincing stability
mechanism” is “a difficult task which implies sensitive
questions of moral hazard and of sharing financial efforts among
members should risks materialize,” he said.

Efforts toward a new fiscal accord lack a “comprehensive
solution,” increasing pressure on sovereign-debt grades, Fitch
Ratings said this week. Moody’s Investors Service said it will
review the ratings of EU nations because the Dec. 9 summit
accord produced few new measures to tackle the debt crisis.